* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project
Economics 101 Summer 2011 Answers to Quiz #4 Name __________________________________ Please write legibly and neatly in answering this quiz. Remember that we reserve the right to count an answer as wrong if we cannot read it. 1. Consider a monopoly. The market demand, marginal cost and average total cost for this monopoly are given below. Market Demand: P = 200 – 2Q Marginal Cost: MC = 40 (assume there are no fixed costs) Average Total Cost: ATC = 40 a. (2 points) If this monopolist acts as a single price monopolist what price will it charge and how many units of the good will the monopolist produce given the above information? Answer: MC = MR MR = 200- 4Q 40 = 200 – 4Q 4Q = 160 Q = 40 P = 200 – 2(40) = $120 b.(2 points)If this monopolist is a single price monopolist what will the level of its economic profits be? Answer: TR = 40(120) = $4800 TC = 40(40) = $1600 Profit = 3200 c. (3 points) Calculate the value of consumer surplus, producer surplus, and deadweight loss for this single price monopolist. Answer: CS = (1/2)(80)(40) = $1600 PS = 80(40) = $3200 DWL = (1/2)(80)(40) = $1600 d. (1 point) Suppose this monopolist practices first degree price discrimination. How many units of the good will the perfect price discriminating monopolist produce? Explain this choice of output. Answer: The perfect price discriminating monopolist charges different prices for each consumer. The demand curve is also the marginal revenue curve for this perfect price discriminator. The optimal amount of the good to provide in this scenario is where D = MC or 200 – 2Q = 40 or Q = 80. By selecting this amount the marginal cost of producing the last unit is equal to the marginal revenue from selling the last unit. e. (2 points) What is the value of producer surplus when the monopolist practices first degree price discrimination? What are the perfect price discriminator’s profits? Answer: Producer surplus is equal to (1/2)(160)(80) = $6400. The profits for the perfect price discriminator are equal to TR – TC = (1/2)(160)(80) + 40(80) – (40)(80) = $6400.